Contract based watershed conservation, such as payment for watershed services (PWS) is increasingly used to tackle water shortages and low water quality in the Andean area. In recent years, a specific kind of PWS has emerged in this field. Reciprocal Water Agreements (RWA) follow the basic idea of PWS, but rely more on social exchange and values, rather than on marketbased cash flows. This studys objective is to identify special features in the application of RWA in Cuenca, Ecuador, and to determine potential improvements of RWA in comparison to PWS. For this purpose, I analyze the implementation of RWA in the watershed of Yanuncay, a water supply area of Cuenca, where RWA had been implemented in 2011. The analysis demonstrates that the reciprocal contracts were thoughtfully adapted to the social and environmental conditions and individually negotiated with the service providers. To reduce the burden of transaction costs, the implementing institution (RARE) applied standardized procedures and used available data resources.Instead of monetary incentives, as commonly used in PWS schemes, ETAPA (the principal customer) compensates Yanuncays land owners with a periodic supply of agricultural materials and training to encourage a shift in the land use practice and ameliorate the farmers productivity. As the incentives financial value is significantly lower than the calculated opportunity cost, it gives the oppor-tunity to negotiate with owners of large properties. This model stands in contrast to PWS and suggests positive effects in the long run. Based on the observations in the watershed of Yanuncay, Reciprocal Water Agreements can be considered as a promising tool for watershed conservation. Nevertheless, the case study shows that RWA projects can be affected by the typical problems of PWS such as free riding, nontransparent financial mechanisms and mistrust on the participants part.